JSW Paints set to add lustre with Akzo India buy

Time of India

15-05-2025

Mumbai:
JSW Paints
has emerged as the frontrunner to acquire
Akzo Nobel India
, trumping the only competing bid from a consortium of Advent International and
Indigo Paints
, said people aware of the development. Ending weeks of intense negotiations, the two have signed an exclusivity agreement for bilateral negotiations to finalise terms and documentation for a share purchase agreement before making a formal announcement.
If successful, this will catapult JSW to fourth position in India from lower down in the pecking order, inching closer to third-placed
Kansai Nerolac
in the decorative segment and putting it in No. 2 in
industrial paints
. It also will help JSW Paints inch closer to the Rs 10,000 crore revenue mark, putting it in line for a possible IPO.
Decorative paints
account for 75% of the total demand in the country, led by repainting and new construction.
Asian Paints
leads the segment, followed by Berger and Kansai Nerolac. (Yes) although margins are shrinking owing to increased competition from new entrants such as Birla Opus.
Both bidders for
Akzo Nobel India
had submitted binding offers late last month, ET was first to report April 24. Hectic deliberations have been underway in the past few weeks, starting at a significant discount to the current
market value
, keeping in mind the fast-changing competitive landscape of the Indian paints business. The bid-ask gap is said to have shrunk significantly over this period.
Akzo Nobel India's current market value is at Rs 15,857.14 crore, the stock having closed Thursday at Rs 3,482, down 25% from its 52-week high of Rs 4,649 on October 9. To be sure, it surged about 36% in the past 12 months in anticipation of a sale, making it the most expensive paint stock in the world. Parent AkzoNobel NV holds a 74.76% stake as promoter and JSW's offer will trigger an open offer.
JSW's offer is said to be at a 5-8% discount to the market price, valuing the promoter stake at Rs 11,854.63 crore ($1.39 billion). Privately held JSW Paints is expected to reverse merge with the listed Akzo Nobel India, according to the people cited. It's not yet clear if AkzoNobel will retain a small stake in the combined business. Citi and Morgan Stanley are advisors to the transaction.
For the moment, JSW is looking to buy the India operations with an understanding that it will eventually take over operations in Sri Lanka, where Akzo already has a local joint venture partner.
Sajjan Jindal-led JSW has been in discussions with several global banks and financial institutions including Standard Chartered Bank, MUFG and Barclays for
acquisition
funding, said the people cited. It's also said to be in talks with Ares Capital, KKR, Goldman Sachs and Apollo Global Management for Rs 4,000-4,500 crore of structured financing. Apollo is already an investor in the group's cement business. The financing consortium is yet to be finalised.
The promoters, the
Sajjan Jindal
family, are expected to infuse Rs 2,500-3,000 crore as equity. The deal size will depend on the success of the open offer.
JSW was not available for comment. AkzoNobel NV declined to comment on market speculation.
Ares, Goldman Sachs XXXX. KKR declined to comment.
AkzoNobel had announced plans to review its business operations in the Indian subcontinent in October 2024. In February, Akzo Nobel India hived off and agreed to sell its powder coatings business—its most profitable stream that contributes 12-14% of sales--to its Dutch parents. That took the shine off the deal for several potential suitors, industry executives said.
JSW Paints hasn't been able to break into the decorative top three since it was set up six years ago. On the other hand, newcomer Birla Opus, from
Grasim Industries
, has managed to gain a 3-4% market share in the third quarter alone, said industry executives. Given that Akzo Nobel India's Dulux Paints is present in the luxury and uber-luxury category and in urban markets, a deal will give JSW Paints significant heft in the market.
JSW Paints managing director Parth Jindal had described the Akzo Nobel India stake sale as an 'exciting opportunity' in January. 'There is no choice... I have to give everything I've got for Akzo Nobel India,' he had said at the time.
Grasim, part of the Aditya Birla Group, marked one year of its paints operations in February. It's completed the construction of four plants and is looking to set up two more. It has invested Rs 9,000 crore so far in advertising and marketing besides capacity expansion and dealer incentives. An additional Rs 1,000 crore is earmarked for new plants and its eyeing a network of 50,000 dealers by the end of March.
Paint company operating profitability margins, which shrank to 16% in H1FY25 from 20% in the year before, are expected to further contract to 14% by FY26, according to Care Ratings, after a sustained CAGR of 14-15% between FY19 and FY23. Earlier this week, ET had reported Reliance Industries Ltd's plan to divest its 5% holding in
Asian Paints
for over $1 billion.
Akzo Nobel India, like most in the industry, has been bracing for sectoral headwinds. The company has about 7% market share in India and is one of the most profitable in the segment with an annual production capacity of 250 million litres, focused on high-end decorative paints. It has experienced low single-digit growth in value while profits in Q3FY25 were down by 5%, partly due to a special dividend issued in the previous year. But the automotive and vehicle refinish segments as well as the coil coating part of industrial paints faced challenges, impacting overall business performance.